With Sun on Roof, More Yen in the Pocket

By KEN BELSON

Published: July 29, 2003

YOSHIKAWA, Japan—
Yoshiko Takahashi is no environmental activist, but in the last year she has become an ardent fan of the solar panels that generate most of the electricity for her 1,100-square-foot home. Using solar power, which was included with the new house that she and her husband bought a little more than a year ago, has not only cut the family's electricity bill by 17 percent but also made her feel good about helping fight global warming.

''We feel our roof panels are contributing to a great cause,'' she said, her 7-year-old daughter at her side. ''And it's better to use the sunshine right above your head than depend on the electric company.''

Mrs. Takahashi is among 70 families who live in this compact neighborhood, the largest collection of solar-powered homes in Japan. The success of the development is part of the reason Japan has become the world's largest market for solar energy. Indeed, the builder, Hakushin, is constructing another complex, of 87 homes, nearby.

Japan is almost completely dependent on imported fuel, which makes its prices for electricity among the highest in the world. In response, the Japanese have worked for a decade to build up their renewable energy resources, and the effort is starting to pay off.

Japan now generates half the world's solar power, and the market here for solar technology is expected to grow fivefold, to about $4 billion by the end of the decade, according to the Japan Photovoltaic Energy Association.

The government is also pushing to meet targets for reducing greenhouse gases, as set out in the Kyoto Protocol nearly six years ago. The Bush administration remains opposed to committing the United States to its goals, but Japan, as the host of the conference, is eager to honor its agreements.

Japanese lawmakers and officials support alternative energy as a good homegrown business that can help cut energy costs; they also see it as a potentially strong export industry.

To promote the use of solar power, the government funnels about three billion yen a year -- more than $25 million at current exchange rates -- to help companies develop more efficient solar technology. And since 1994, it has spent 116 billion yen ($971 million) on rebates for consumers who install photovoltaic panels on their roofs.

With the demand expanding, Japan has overtaken the United States as the world's leading producer of solar panels. By 2010, the government wants solar power generation to be sharply increased, to 4.82 million kilowatts, 40 percent more than experts expect Americans to generate by then. To reach that target, one million homes will have to be outfitted with solar panels -- eight times more than now use solar power.

Reaching these goals is far from assured. The makers of solar panels face competition from generators of wind power and other clean energy sources. Though solar panels are suited for homes and small buildings, wind power generates energy for as little as 20 percent the cost of photovoltaic panels. Some Americans oppose windmills as a blot on the landscape, but Japanese seem less concerned. Wind farms increasingly dot rural districts.

Crucially, though, the government, burdened by budget deficits, is trying to phase out subsidy programs, which have typically covered one-third of the cost of panels for home use. The subsidies paid per kilowatt of installed solar-panel power have been gradually reduced and are to run out in two years.

Unless manufacturers lower their prices to make up for the lost subsidies, consumers may turn against solar energy, which requires an initial investment of about 2.25 million yen ($18,845), or 25 percent more than what Americans pay.

Some of the subsidies to be lost from Tokyo will be offset by grants from more than 200 local governments. But these programs vary widely. In Kobe, for instance, new schools and hospitals are being outfitted with solar panels so they can keep operating during an earthquake or other disaster. In other districts, few programs exist.

The government is removing another big incentive by deregulating the country's electricity market. To reduce the cost of doing business in Japan, it is allowing companies to generate their own power -- a business that has been dominated for half a century by 10 regional utilities. Growing competition has forced the utilities to lower their prices, even if slowly, reducing the need for households to generate their own power.

''Japan's energy policy is now at a turning point,'' said Toshihiko Nakata, a professor of science and technology management at Tohoku University. ''If there are no subsidies, consumers won't buy solar panels. And as the government deregulates the utilities, electricity prices will come down, so it will take longer for consumers to recoup the cost of installing the panels.''

But solar energy prices are falling, too, which is expected to help the industry fight back. The cost of residential solar power systems has dropped by about 80 percent in the last decade, to around $6,000 for each kilowatt of generating capacity. Most solar homes install three kilowatts of capacity, enough to meet half their total power needs.